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August 2019

Opportunities For Turkey Under CORSIA Final Report

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Disclaimer: Neither this report nor any part thereof, including, without limitation, any information, opinion, advice or

recommendation contained therein, is intended to constitute specific technical, financial, commercial or legal advice and

nothing therein purports in any manner to replace professional advice. No express or implied warranties are made with regard

to this report, and there are no third party beneficiaries thereof. Neither the European Bank for Reconstruction and

Development, Climate Focus, Gaia Carbon Finance, IETA, Walburg & Partners nor any of their directors, officers employees,

shareholders or agents can be held liable for any errors, omissions or inaccuracies this report may contain. This report reflects

the views of the consultants and not necessarily those of the European Bank for Reconstruction and Development.

Opportunities for Turkey under CORSIA

For: European Bank for Reconstruction and

Development (EBRD)

August 2019

Authors:

Szymon Mikolajczyk, Lieke ‘t Gilde, Thiago

Chagas (Climate Focus), Egbert Liese

(Walburg & Partners), Stefano De Clara (IETA)

and Gediz Kaya (GAIA Carbon Finance)

Climate Focus

Sarphatikade 13,1017 WV Amsterdam

The Netherlands

adviceandprojectmanagement

WALBURG&PARTNERSB.V.

1

Contents

Acknowledgements 1

1. Setting the Scene 2

1.1 Introduction 2

1.2 Objective of the Report 2

1.3 Turkey and the Paris Agreement 3

1.4 Turkey and the Carbon Markets 4

1.5 Carbon Offsetting and Reduction Scheme for International Aviation 5

1.6 Turkish Renewable Energy and Energy Efficiency Policies 6

1.7 Avoidance of Double Counting of Carbon Credits 8

2. Domestic Demand and Supply 9

2.1 Matching Domestic Demand with Supply 9

2.2 Potential Demand from Turkish Aircraft Operators 9

2.3 Potential Supply from Existing Turkish Carbon Projects 13

2.4 Potential Supply from New Turkish Carbon Projects post-2020 20

3. Carbon Accounting in Turkey 25

3.1 Risks of Double Counting 26

3.1.1 Scenarios of Double Counting Considered for Turkey 26

3.1.2 Existing and Emerging International Guidance on Double Counting 27

3.2 Considerations on Addressing Double Counting 29

3.2.1 Addressing Double Claiming: Debit and Credit approach 29

3.2.2 Addressing Double Issuance and Use: Full-Fledge Registry 31

3.3 Emission Reductions Management to Avoid Double Counting 35

4. Considerations 38

4.1 CORSIA and the Turkish Carbon Market 38

4.2 Issues to be Considered in Management of Emission Reductions 40

4.3 Environmental Integrity 41

5. Appendix 44

Acknowledgements

1

Acknowledgements

This report is drafted as part of the Carbon Finance Consultant assignment

for the Mid-size Sustainable Energy Financing Facility (MidSEFF). The

principal is the European Bank for Reconstruction and Development

(EBRD), and the assignment is funded by the Bank’s Special Shareholder

Fund (SSF) – see also www.turkishcarbonmarket.com and

www.midseff.com.

The authors of this report are Szymon Mikolajczyk, Lieke ‘t Gilde, Thiago

Chagas (Climate Focus), Egbert Liese (Walburg & Partners), Stefano De

Clara (IETA) and Gediz Kaya (GAIA Carbon Finance). We would like to

express our gratitude to, Directorate General of Civil Aviation staff (Deniz

Kaymak and Ahmet Korkmaz), Directorate General of Environmental

Management (Mehrali Ecer and team), Directorate General of Renewable

Energy (Ümit Çalikoğlu) and EBRD staff (Jay Barlow, Jan-Willem van de

Ven and Philip Good) for their valuable inputs and comments.

Setting the Scene

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1. Setting the Scene

1.1 Introduction

The European Bank for Reconstruction and Development (EBRD) is

promoting the acceleration and scale-up of sustainable energy investments

in Turkey. Through the Mid-size Sustainable Energy Finance Facility

(MidSEFF), EBRD provides close to EUR 1.5 billion in credit lines to finance

mid-size investments in clean energy, waste-to-energy and industrial energy

efficiency. To date, more than 60 projects have been financed under this

facility.1

As part of MidSEFF, a dedicated carbon finance programme has been

launched. The aim of this programme is to promote new financing

mechanisms through the expansion and development of the carbon market

in Turkey and to encourage the participation of Turkish banks and

companies in engaging in the carbon market. The activities under this

dedicated carbon finance programme include monetisation support to

carbon projects. Numerous carbon projects that have been developed in

this context in Turkey have contributed to the supply of carbon credits on

the voluntary carbon market. Following the adoption of the Carbon

Offsetting and Reduction Scheme for International Aviation (CORSIA) in

2016, the carbon finance programme initiated discussions with the Turkish

government concerning the implications this scheme could have on the

domestic carbon market and the country’s contribution towards the

ambitions of the Paris Agreement (PA). To further inform these discussions

and provide the Turkish government insight into the implications of using

domestic carbon credits in the new post-2020 climate regime, this report

was requested by the Ministry of Environment and Urban Planning and the

Turkish Directorate General for Civil Aviation.

1.2 Objective of the Report

The objective of this report is to advise the Turkish government on the

possible strategies to stimulate the supply position of the domestic carbon

credit market towards CORSIA, while securing Turkey’s capacity to meet its

energy sector pledges under the PA in an environmentally integral way.

Chapter 1 provides the context in which this analysis is carried out. Chapter

2 analyses the demand and supply scenario by providing estimates on the

maximum offsetting requirements for the Turkish aviation sector, and

presents carbon credit supply scenarios from existing Turkish projects.

Chapter 3 explores in further detail the issue of double counting and what

strategies could be applied to mitigate this risk in the Turkish context.

Chapter 4 ends with a set of considerations.

1 www.midseff.com/portfolio.php

Setting the Scene

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1.3 Turkey and the Paris Agreement

On 12 December 2015, 196 Parties to the UN Framework Convention on

Climate Change (UNFCCC) adopted the PA, a new legally binding

framework for an internationally coordinated effort to tackle climate change.

The PA represents the culmination of six years of international climate

change negotiations under the auspices of the UNFCCC. It requires

countries to formulate progressively more ambitious climate targets, which

are consistent with this goal.

To achieve the ambition of the PA – keeping global warming “well below”

2°C, or even 1.5°C – rapid implementation of large-scale mitigation action is

urgently needed. According to the 2018 IPCC Special Report, human

activities are estimated to have caused approximately 1.0°C of global

warming above pre-industrial levels. Global warming is likely to reach 1.5°C

between 2030 and 2052 if it continues to increase at the current rate.

Pathways limiting global warming to 1.5°C will therefore require a rapid

transition across all major sectors in the global economy, resulting in deep

emission reductions.2 Strengthening climate finance flows and leveraging

carbon markets will be vital in leveraging the scale of finance needed to

trigger the transition towards low carbon development pathways.

In the Intended Nationally Determined Contribution (INDC)3 submitted by

Turkey to the UNFCCC in September 2015, Turkey aims to reduce

greenhouse gas (GHG) emissions by 21 per cent from a business-as-usual

level by 2030, prioritising interventions in renewable energy, industrial

efficiency, transport, buildings and agriculture. Turkey’s signing of the PA in

April 2016 marks the first step towards the implementation of the

commitments reflected in the INDC.

Figure 1: GHG emissions trajectory of Turkey under a business-as-usual

scenario and pathway per INDC

The PA entered into force on 4 November 2016, thirty days after a minimum

of 55 Parties to the Convention accounting in total for at least 55 per cent of

the total global GHG emissions ratified the PA. As Turkey has not ratified its

INDC, the status of its contribution is still ‘Intended’.

2 IPCC Special Report (2018) Global Warming of 1.5°C. 3 Turkey’s INDC submission (2015) Available at www4.unfccc.int/submissions/INDC/Published%20Documents/Turkey/1/The_INDC_of _TURKEY_v.15.19.30.pdf.

Setting the Scene

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1.4 Turkey and the carbon markets

Historically, Turkey plays a prominent role in the global voluntary carbon

market. The voluntary carbon market relates to transactions in carbon

credits that fall outside the compliance schemes created under the Kyoto

Protocol. Companies that pursue voluntary GHG emissions targets and

intend to demonstrate climate leadership within the industry largely drive

demand for carbon credits in this market.

Turkey represents the largest seller of voluntary carbon credits in Europe.

Over the period 2007 – 2016, Turkey transacted around 37 million tonnes of

CO2e valued at over US$ 200 million. This is equivalent to approximately 70

per cent of total market volume in Europe to date. In 2016, Turkey was

responsible for over two-thirds of all primary transactions in Europe,

amounting to 1.9 million tonnes of CO2e. This made Turkey the sixth largest

supplier of voluntary carbon offsets globally after India, the United States,

Korea, China and Brazil, on par with other large players including Indonesia

and Uganda. Despite high transaction volumes, however, the total value of

these transactions declined from US$ 18.6 million in 2013 to US$ 2 million

in 2016 due to a decline in the price of carbon in recent years. The majority

of Turkey’s voluntary carbon transactions were derived from sales of VERs

generated by wind, hydro, and landfill methane projects.

Figure 2: Top players in the voluntary carbon markets, including Turkey’s role

in terms of transacted volumes and valuation (2016 data)4

Turkish carbon projects are developed primarily under one of two

standards: the Gold Standard and the Verified Carbon Standard (VCS)

(recently re-branded to be Verra). As of May 2018, Turkey had 244

registered projects, 130 of which were under the Gold Standard and 114

under the VCS. Both standards stand out as internationally respected

frameworks for the development and implementation of emission reduction

projects and are transacted globally.

4 Adapted from: Ecosystem Marketplace (2017) Unlocking Potential: State of the Voluntary Carbon Markets 2017.

Setting the Scene

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Figure 3: Volume of offsets transaction by country (2015 data)5

Turkey’s active presence in the voluntary carbon market is reflected in

MidSEFF’s portfolio of financed projects, many of which have been

developed as carbon projects and are monetising carbon revenues.

1.5 Carbon Offsetting and Reduction Scheme for International Aviation

The carbon dioxide (CO2) emissions from aviation account for

approximately 2 per cent of the global greenhouse gas emissions. This

amount is expected to grow around 3 to 4 per cent annually.6 In 2016 the

International Civil Aviation Organisation’s (ICAO) General Assembly

approved the Carbon Offsetting and Reduction Scheme for International

Aviation (CORSIA). Along with other improvements in fuel efficiency,

operations and infrastructure (ICAO’s described “basket of measures”),

CORSIA will enable the aviation sector to achieve carbon-neutral growth

from 2020 onwards. At the heart of this market-based scheme is the

possibility for airline companies to offset their future emissions growth

through the purchase of international carbon credits, also called offsets.

The average level of CO2 emissions from international aviation covered by

the scheme between 2019 and 2020 represents the basis for carbon neutral

growth from 2020, against which emissions in future years are compared.

This means that any CO2 emissions beyond this baseline, determined on an

annual basis, will need to be offset by the airline industry every three years.

CORSIA will be implemented in phases, starting with participation of

countries on a voluntary basis, followed by participation of all countries

(except certain exempted nations) as follows:

5 Adapted from Ecosystem Marketplace. Raising Ambition: State of the Voluntary Carbon Markets 2016. May 2016. 6 ICAO. Aircraft Engine Emissions. Available at https://bit.ly/2tUt8wn.

Setting the Scene

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A pilot phase (from 2021 through 2023) that applies to countries

that have volunteered to participate in the scheme and where there

is flexibility towards defining the exact approach to the emissions

offset calculation;

A first phase (from 2024 through 2026) that applies to countries

that have volunteered to participate in the scheme and where a

sectoral approach is to be followed to determine the emissions

offset obligation;

A second phase (from 2027 through 2035) that applies to all

countries that have an individual share of international aviation

activities beyond a minimum share.7

Countries that voluntarily decide to participate in the CORSIA may join the

scheme from the beginning of a given year, and will need to notify ICAO of

their decision to join by June 30 the preceding year. All Member States of

ICAO, including Turkey, will be required to make appropriate changes to the

national regulations to align with the CORSIA relevant Standards And

Recommended Practices (SARPs)8. To the extent possible, the provisions

of the SARPs have been written in such a way as to facilitate incorporation,

without major textual changes, into national legislation.

The SARPs will become applicable to Member States as of 2019 and,

regardless of the participation in the voluntary phases of CORSIA, all

Member States will need to start monitoring, reporting, and verifying CO2

emissions from flights starting from January 1st 2019. In Turkey, the

preparation for the transposition process of this requirement into national

law has commenced and is being supported by the Turkish Directorate

General for Civil Aviation. The law will determine which entities are to be

responsible for verifying the emissions reports prepared by operators,

handling of cancellations of eligible emission reductions units, and reporting

of these emissions to ICAO.

1.6 Turkish Renewable Energy and Energy Efficiency Policies and Measures

An upper middle-income country with a population of 75 million, Turkey

boasts a growing economy with an average annual growth rate of nearly 5

per cent between 1999 and 2017. The country’s rapid development has also

increased GHG emissions across key economic sectors. Over the past

decade, economy-wide GHG emissions increased by more than 35 per

cent.

As the country further develops, more energy is needed to feed this growth.

The government expects energy demand in Turkey “to double in the

upcoming 10 years”9 and plans on meeting parts of this increased demand

by building new coal-fired power plants.10 Turkey is also planning to add

nuclear power to its energy mix. The Energy and Natural Resources

7 Share should be above 0.5 per cent of total international Revenue Tonne-kilometres, except Least Developed Countries, Small Island Developing States and Landlocked Developing Countries unless these states volunteer to participate. 8 Standards And Recommended Practices are technical specifications adopted by the Council of ICAO to achieve uniformity in regulations, standards, procedures and organisation in relation to the airline industry. 9 Ministry of Environment and Urbanisation (2016). Sixth National Communication of Turkey. Available at https://bit.ly/2YNqI2n 10 Istanbul Policy Center (2016). Coal Report. Turkey’s coal policies related to climate change, economy and health

Setting the Scene

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Minister announced that by 2030 Turkey would be able to meet 10 per cent

of the country-wide electricity consumption with nuclear power.11

In response to the rapid increase in GHG emissions, Turkey is working

towards developing new domestic policies that will facilitate the country’s

transition into a greener growth trajectory. In support of this effort the

government published a new National Energy Efficiency Action Plan for

2017 to 2023. The plan includes a large number of measures, including

increased use of renewable energy, district heating in buildings and

encouraging the use of combined heat and power across industries.

Sectoral measures will include industry, transport, construction, heating and

cooling, agriculture and energy generation.

Turkey also aims to scale up its efforts to develop its potential in renewable

sources of energy including wind, solar, hydro and geothermal energy

generation. The country is seeking to develop 30 per cent of its total

installed capacity from renewable sources by 2023. The objective is to add

34 GW of hydropower, 20 GW of wind energy, 5 GW of solar energy, 1.5

GW of geothermal and 1 GW of biomass. Turkey also aims to have 10 per

cent of its transport sector needs met by renewable energy.

These national policies are reflected in Turkey’s INDC.12 The document

presents an economy-wide intervention including energy, industrial

processes and products use, agriculture, land use land-use change and

forestry, and waste sectors.

In the energy sector, the INDC proposes the following goals:

Increasing capacity of production of electricity from solar power to

10 GW by 2030;

Increasing capacity of production of electricity from wind power to

16 GW by 2030;

Tapping the full hydroelectric potential;

Commissioning of a nuclear power plant by 2030;

Reducing electricity transmission and distribution losses to 15 per

cent at 2030.

Regarding industrial energy efficiency, the INDC stresses the following

needs:

Reducing emission intensity with the implementation of National

Strategy and Action Plan on Energy Efficiency, and

Increasing energy efficiency in industrial installations and providing

financial support to energy efficiency projects.

The Investment Support and Promotion Agency of Turkey indicates that

around USD 110 billion of investments will be needed to meet Turkey’s

expected energy demand by 2023.13

11 Daily Sabah (2017) Turkey to expand capacity to meet energy needs with 3 nuclear power plants in action. Available at https://bit.ly/2FWUF93. 12 Turkey’s INDC submission (2015) www4.unfccc.int/submissions/INDC/Published%20Documents/Turkey/1/The_INDC_of _TURKEY_v.15.19.30.pdf. 13 See www.invest.gov.tr/en-US/sectors/Pages/Energy.aspx.

Setting the Scene

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1.7 Avoidance of Double Counting of Carbon Credits

If Turkey is to implement its INDC and airlines decide to purchase carbon

credits from Turkish projects, there is a risk that the emission reductions

generated through these projects will be double counted – i.e. once by the

airline to compensate its obligations under CORSIA and again by Turkey if

these emission reductions are also counted towards the country’s INDC. In

the context of climate change mitigation, double counting is widely used to

describe situations where a single greenhouse gas emission reduction or

removal is used more than once to demonstrate compliance with mitigation

targets. Double counting becomes prominent where multiple mitigation

mechanisms overlap over sources or sinks and when emission reductions

are transferred among entities subject to mitigation targets and accounted

towards them. Measures can be taken to avoid double counting to secure

environmental integrity, as explored in this report.

Domestic Demand and Supply

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2. Domestic Demand and Supply

2.1 Matching Domestic Demand with Supply

CORSIA is expected to grant individual aircraft operators a degree of

flexibility with regards to the type of carbon credits that can be sourced for

offsetting purposes. As such, airlines will be able to decide whether to

source carbon credits domestically or through international channels.

Buying strategies of aircraft operators will be cost-focused but will also be

influenced by the origin and quality of the generated carbon credits.

Countries that host large portfolios of carbon credit projects but lack

effective and transparent approaches to dealing with the risk of double

counting may be less attractive partners for the airline industry.

This chapter explores the relationship between the potential demand for

carbon offsets coming from Turkish aircraft operators and the potential

supply of eligible carbon credits from domestic carbon projects. The

analysis serves to inform the Turkish government about the estimated

domestic demand and supply dynamic. The results of the analysis for

Turkey are also relevant to guide the strategic recommendations on how to

mitigate the risk of double counting in the context of Turkey’s INDC.

Whereas this analysis only looks at the Turkish supply and demand

dynamics, it should be noted that CORSIA will operate as an international

market and thereby deals with international supply and demand dynamics

beyond the Turkish market.

2.2 Potential Demand from Turkish Aircraft Operators

Demand model

As of March 2019, 79 States, representing 76.63 per cent of international

aviation activity, intend to voluntarily participate in the CORSIA scheme

from its outset.14 Turkey, as a Member State of the European Civil Aviation

Conference, has agreed to partake in CORSIA from the very beginning as

well.

Turkey counts more than 10 aircraft operators, of which four are purely

cargo airlines and the remaining are either pure passenger airlines or

service both passengers and cargo transport needs. All of these operators

will be required to participate in all three phases of CORSIA and as such the

complete national fuel data has been taken into account when preparing the

demand calculation model for offsets over the period 2021 – 2035.

The total fuel used in the Turkish civil aviation sector in 2015 was more than

4.8 million tonnes of JET A1 fuel (See table 1 below). With a conversion 14 See www.icao.int/environmental-protection/CORSIA/Pages/state-pairs.aspx.

Domestic Demand and Supply

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factor of 1 tonne of JET A1 fuel to 3.16 tCO215, this corresponds to total CO2

emissions associated with all the international civil aviation flights of Turkish

operating airline companies of 15,271,534 tonnes in 2015. This amount of

emissions represents a 19.3 per cent increase compared to 2014.

Table 1: International fuel consumption and associated CO2 emissions from

the Turkish Aviation Sector

Year International Fuel

Consumption (tonne)

Total International

emissions (tCO2)

2014 4,052,756 12,806,709

2015 4,832,764 15,271,534

Source: The Turkish Directorate General for Civil Aviation (DGCA)

Only emissions from international flights where both the origin and

destination states participate in the CORSIA are subject to offsetting

requirements every year from 2021 onwards – the so called “route-based

approach”. As the international civil aviation CO2 emissions represent 76.63

per cent of the total global aviation activity, the demand model applied this

factor to determine the total emissions to be covered in Turkey.16

Next, the growth rates of CO2 emissions from the Turkish civil aviation

sector shared by the DGCA have been incorporated in the demand model,

which is based on the calculation methodology as included in the ICAO

Assembly Resolution 39.3.17 These include 4 per cent per year in the low

growth scenario, 8 per cent per year in the medium growth scenario and 12

per cent per year in the high growth scenario. These growth projections are

in line with the growth in emissions observed between 2014 and 2015 (i.e.

19.3 per cent) and significantly exceed ICAO’s forecast of annual global

aviation emissions growth of 3 per cent. Turkey’s aviation market is

expected to continue to outpace the global average growth rate. Although

increased traffic growth does not equal growth in emissions due to

efficiency improvements in fleet, routes and other measures, it is an

indicator. According to Turkish Airlines, annual growth of international traffic

grew by 12.9 per cent per year between 2011 and 2017.18 According to

IATA, this growth is likely to continue given the strong favourable

geographic location and opening of the new Istanbul Airport.19

As the demand model is based on the sum of all Turkey based aircraft

operators, these growth rates have been applied for the determination of the

baseline emissions (the average of forecasted 2019 and 2020 emissions)

and the individual operator’s growth rate (for the period 2021 – 2035). As

such, the anticipated average emissions in the baseline years 2019 and

2020 are 14 MtCO2 assuming a low growth scenario, 16.6 MtCO2 assuming

a medium growth scenario and 19.5 MtCO2 given a high growth scenario

(see table 2 below).

15 Source: Directorate General of Civil Aviation (2018). 16 Although more countries are expected to participate as of 2027, the demand model conservatively assumes that for the period 2027 – 2035 the same 87.7 per cent participation factor will apply. 17 See formula for calculating offset requirements in section 11 in Resolution A39.3 Consolidated statement of continuing ICAO policies and practices related to environmental protection – Global Market-based Measure (MBM) scheme. 18 Turkish Airlines (2016) Presentation available here: https://bit.ly/2JZOuVH 19 IATA (2015) Air Passenger Forecasts Global Report. Available at https://bit.ly/2WO5n7r

Domestic Demand and Supply

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Table 2: Average CO2 emissions in baseline year under 3 growth scenarios

Growth scenario Average 2019/2020

(MtCO2)

Low 14.0

Medium 16.6

High 19.5

Based on the baseline emissions, the sectoral growth factor and the

operator growth factor, the offset requirements can be calculated, as per the

formula in paragraph 11 of the Assembly Resolution20. As per this formula,

the demand model follows a concept of a “dynamic approach” for the

calculation of the offset requirements. This approach allows to gradual

move from the use of 100 per cent “sectoral approach” (and therefore 0 per

cent individual approach) from 2021 to 2029, towards the use of “individual

approach” of at least 20 per cent from 2030 to 2032; and at least 70 per

cent from 2033 to 2035. “Sectoral approach” represents the international

aviation sector’s global average growth factor of emissions in a given year,

while “individual approach” represents an individual operator’s growth factor

of emissions in a given year. Annual growth values for both approaches

have been made available by the DGCA.21, 22

Results

The table below summarises the demand potential between 2021 and 2035

considering the three different growth scenarios. The offset requirements for

the Turkish civil aviation sector for all three phases in total fall between 88.8

MtCO2 in a low growth scenario and 405.2 MtCO2 in a high growth scenario.

For comparison reasons, a fourth scenario has been included. This scenario

assumes the growth in emissions from Turkish aircraft operators to be equal

to the medium global emissions growth rate as forecast by ICAO (i.e. on

average 3 per cent). The offset requirements under this scenario are 53.2

MtCO2, considerably lower due to the large difference in forecast growth

rates.

The volumes of demand are split over the three CORSIA phases (pilot,

phase 1 and phase 2) to show the implications of time on the overall

demand.23

20 The formula to calculate the offset requirements can be found here: www.icao.int/environmental-protection/Documents/Resolution_A39_3.pdf 21 Whereas Turkey’s “individual approach” assumes a constant growth rate under the three scenarios, the estimated growth factor that is to be applied in the “sectoral approach” varies between 2 and 3 per cent growth per year. There is a one-off spike in 2017 of 7 per cent per year. This is due to the start of the mandatory phase. 22 The Resolution 39-3 Para 11. e), i), b) allows States to apply the sectoral growth rate to an aircraft operator’s emissions covered by CORSIA in 2020 for the duration of the pilot phase (2021-2023). This would reduce the estimated offset requirements for the Turkish civil aviation sector with 230,000 in the low scenario and 1.1 million in the high scenario, equal to a reduction in offset requirements of respectively 7.5 per cent and 20.6 per cent. 23 Based on pricing scenarios of credits transacted under CORSIA prepared by CAEP for ICAO. Available at https://bit.ly/2HW2kqk. The value of the offset requirements for the Turkish aviation sector could range between $0.91 billion and $14,6 billion over the period 2021 - 2035. The pricing scenarios have been prepared applying the demand forecasts presented in table 3. These figures should be treated as indicative only.

Domestic Demand and Supply

12

Table 3: Forecast offset requirements of Turkish aircraft operators under

CORSIA in each phase assuming four growth scenarios (tCO2)

Phase Pilot

(Voluntary) (MtCO2)

Phase 1 (Voluntary)

(MtCO2)

Phase 2 (Mandatory)

(MtCO2)

Total

(MtCO2)

Years 2021-2023 2024-2026 2027-2035 2021-2035

Low 3.08 6.79 77.53 87.39

Medium 4.02 9.95 182.10 196.06

High 5.20 14.40 382.81 402.41

Medium ICAO 2.65 5.17 44.26 52.07

Figure 4 below visualises the development of the annual and cumulative

potential demand assuming the four growth scenarios.

Figure 4: Annual forecast offset requirements of Turkish aircraft operators

under CORSIA

-

50

100

150

200

250

300

350

400

450

-

10

20

30

40

50

60

70

80

90

100

Cum

ula

tive D

em

and (

M tC

O2e)

Annual D

em

and (

M tC

O2e)

Year

Low demand (annual) Medium demand (annual)

High demand (annual) Low demand (cumulative)

Medium demand (cumulative) High demand (cumulative)

ICAO demand (cumulative)

Domestic Demand and Supply

13

2.3 Potential Supply from Existing Turkish Carbon Projects

Carbon Project Overview

As of May 2018, Turkey had 244 registered projects, 130 of which were

under the Gold Standard and 114 under the VCS. The break-downs per

project type are presented in the figure below.

Figure 5: Overview of project types by standard – first pie chart for the Gold

Standard (130) and the second pie chart for the VCS (114)

From these projects, 79 have successfully issued carbon credits (all but two

of these are registered under the Gold Standard). The annual average ex-

ante emission reduction potential of an individual project is 75,000 credits,

with the largest registered project generating an estimated reduction of

580,000 tonnes of CO2 per year (hydropower) while the smallest project

achieving an annual mitigation of 2,600 tonnes of CO2. The total installed

capacity represented by all 244 registered projects is 8.9 GW, as per the

table below.

Table 4: Overview of Turkish carbon projects by project type and installed

capacities

Project type Installed capacity (MW)

Hydro power 5,188

Wind power 3,629

Geothermal 104

Solar power 7.3

Total 8,929

From the projects listed above, 39 renewable energy projects are being

supported through EBRD’s MidSEFF Facility. Together, this inventory

accounts for close to 900 MW installed capacity. The cumulative emission

reduction potential of these projects reached around 2.9 million tCO2e by

2018.24 The supply model described below is based on Turkish renewable

energy and energy efficiency projects currently registered under a voluntary

carbon standard. The model therefore only forecasts the potential supply of

carbon credits under different scenarios from existing projects and excludes

possible projects registered after the date of this study.

24 Carbon finance programme (2018) Inventory Survey Report 2018.

Domestic Demand and Supply

14

Supply model25

For the purpose of this report, a number of different supply scenarios have

been prepared to provide insight into the potential carbon credit supply

volumes under different CORSIA eligibility criteria restrictions. These

include the following:

1. No restrictions (base case): this base case scenario assumes that

CORSIA does not agree on any further details than the general

Carbon Offset Credit Integrity Assessment Criteria currently

featured in the CORSIA SARPs. Under this scenario, all carbon

credits generated by Turkish carbon projects since their inception

would be eligible, regardless of their start date, vintage, project type

of carbon standard.

2. Project start date restrictions: this restriction relates to the date

on which the project participants commit to making expenditures for

the construction or modification of the main equipment or facility.

The following two types of scenarios have been assessed:

a) Post-2012: limiting the supply to carbon credits issued to

projects that have a start date on or after 1 January 2013. The

rationale for this cut-off date is alignment with the third trading

period of the EU Emissions Trading Scheme (ETS) which

restricts the use of emission reductions generated before 2012.

The EU-ETS has introduced a number of restrictions with

regards to the use of international carbon credits since that

date, which CORSIA may refer to.

b) Post-2016: limiting the supply to carbon credits issued to

projects that have a start date on or after 1 January 2017. This

date corresponds to the day after the passing of the ICAO

CORSIA Resolution A39-3, which marks the adoption of

CORSIA.

3. Vintage year restrictions: this restriction applies on the individual

project level and relates to the year in which GHG emission

reductions have been generated. The following two types of

scenarios have been assessed:

a) Post-2012: limiting the supply to carbon credits issued for

emissions that took place on or after 1 January 2013, as per the

rationale outlined above.

b) Post-2016: limiting the supply to carbon credits issued for

emissions that took place on or after 1 January 2017, as per the

rationale outlined above.

4. Project type restrictions: while not implied in the draft SARPs,

there is a possibility that the scheme will impose restrictions linked

to particular project types. Although it is not expected that the

scheme would go as far as differentiating between specific sub-

types such as geothermal power or solar PV, restriction on large

hydropower projects (exceeding 20 MW) could be considered due

to their debated sustainability impacts. This is also in line with the

25 For an overview of the assumed methodological approach to derive the supply model, please refer to the Appendix.

Domestic Demand and Supply

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IATA Carbon Offset Programme guidelines, which also exclude

HFC-23 projects.26

5. Standard restrictions: The draft SARPs focus on wider governing

principles rather than specific certifications or offset project types,

potentially opening the possibility for both established compliance

and voluntary carbon standards as well as alternative mitigation

schemes (like jurisdictional REDD initiatives) or future mechanisms

that are to be operationalised under the PA. If carbon credits from

voluntary markets are allowed, it is possible that CORSIA will make

a distinction between different carbon standards. Furthermore, on

the national level linkages between registries may not be extended

to applicable standards. For the purpose of Turkey, the supply

assessment therefore separates the volumes to be generated by

the Gold Standard and the VCS to show what the potential impact

on supply would be following the exclusion of one of the standards.

The supply scenarios visualised in this chapter do not reflect the amount of

carbon credits that have been retired or cancelled between 2006 and 2018.

Over the period 2006 – 2018, Turkey transacted around 40 million tonnes of

CO2e.27 This figure is corrected for in writing in each of the supply scenarios

to give insight into the actual amount of available emission reductions.

The supply scenarios presented in this analysis assume that voluntary

carbon markets will continue to operate under the same regulatory regime

as pre-2021. As such, the only discount factors that are applied to the

supply forecasts relate to the impact of crediting period renewals (e.g. the

associated baseline updates) and adjustments to the ex-ante GHG

emission reduction estimates presented in publicly available PDDs based to

historical issuance success rates of similar project types.28

There is however a risk that under the Paris regime host countries will

institute limits or block the export of carbon credits issued by existing carbon

projects post-2020. The rationale for this – as discussed in further detail in

Chapter 4 of this report – is that the sale and export of carbon assets will

make it more difficult for host countries to meet their NDC targets. This is

particularly relevant for sectors already covered by a country’s NDC. But

given that NDCs are to be renewed once every five years, sectors initially

falling outside the scope of an NDC may be still included in the future.

Turkey’s first INDC already covers renewable energy generation and energy

efficiency, meaning that the carbon projects assessed in this report may at

some point encounter restrictions of such nature. Due to the current

regulatory uncertainty about how carbon assets generated in the voluntary

carbon markets will relate to NDC accounting, this report stresses such

possibility as a risk but does not extrapolate possible regulatory

interventions on domestic supply of carbon credits as there is no basis

under which post-2021 supply scenarios can be defined. The only post-

2021 restriction that has been modelled below relates to the exclusion of

emission reductions generated by large-scale hydropower projects. These

projects generally represent the cheapest abatement option within the

assessed portfolio of renewable energy and energy efficiency activities, and

26 More information in the IATA Carbon Offset Program available at https://bit.ly/2I8Hcw9 27 Ecosystem Marketplace (2016) Raising Ambition: State of the Voluntary Carbon Markets 2016. 28 To ensure conservativeness, an average issuance success rate of 85 per cent has been applied in the supply scenarios to reflect the likelihood that realised GHG emission reductions will be lower than the ex-ante estimations presented in the original PDDs.

Domestic Demand and Supply

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could represent a project category that the Turkish government may

consider counting towards its NDC implementation post-2021.

Result

Scenario 1: No restrictions

Assuming that all carbon credits generated by Turkish carbon projects since

their inception would be eligible, regardless of their start date, vintage,

project type of carbon standard, the cumulative carbon credit supply would

reach 212 million by 2035, as per Figure 6 below.

In this base case scenario, total supply appears to have peaked in 2017

with 14.5 million tonnes of CO2 reduction being generated (after adjustment

for issuance success)29. From 2018 onwards there is a steady drop due to

either project crediting periods coming to an end (in the case of 10-year

fixed crediting period), or due to projects with renewable crediting periods

needing to re-adjust their baselines at renewal. By 2030, annual emission

reductions being generated from the current portfolio of projects is foreseen

to drop below 4 million tonnes annually. As explained in further detail in the

Appendix, for the purpose of the supply scenarios, discount factors of 10

per cent have been applied upon renewal of each crediting period.30

The total amount of pre-2021 carbon credits is 135 million, in a scenario

where post-2020 restrictions would apply to domestic projects. Correcting

for the 40 million VERs already transacted between 2006 and 2018, the

available amount is further reduced to 95 million in the base case.

Figure 6: Total credits supply from registered projects

29 An average issuance success rate of 85 per cent has been applied in the modelling, based on the historical issuance success rate reported in the CDM UNEP DTU Database (2018) 30 The applicable national grid emission factor – the key determinant of the GHG mitigation potential of one MWh generated by a renewable energy project - has been reduced by 10 per cent upon each crediting period renewal. This means that in its third crediting period a typical renewable energy project will generate 80 per cent of the emission reductions forecasted in the Project Design Document.

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Scenario 2: Project start date restrictions

The second scenario considers that CORSIA may limit the types of credits

eligible based on the project start date to all projects only from either a) post

2012 or b) post-2016. If all post-2012 projects are deemed eligible then

credit supply will reach 50.5 million credits by 2035, whereby a peak of 4.6

million tonnes per year will be achieved by 2022, before sharply dropping to

2.3 million tonnes on an annual basis the following year. This is due to a

number of projects with 10-year crediting periods coming to an end in 2023.

After this date, the supply continues to drop steadily due to project crediting

periods coming to an end or needing to renew their baselines.

If CORSIA restricts projects to only post-2016 the number of carbon credits

available from Turkish projects will be considerably lower, at only 232

thousand tonnes per year issued annually between 2017 and 2026. These

are generated by only two projects – both VCS registered and both large

scale hydropower – and will deliver a cumulative of 2.7 million credits by

2026. After 2026, no further Turkish credits would be available from the

current project pipeline due to expirations of crediting periods.

For projects with a start date after 2012, the total amount of pre-2021

carbon credits is 26 million, in a scenario where post-2020 restrictions

would apply to domestic projects. For projects with a start date after 2016,

the pre-2021 volume declines to 1 million. It was not possible to factor in the

impact of the already transacted VERs on this figure as it is not known

which individual projects have sold credits.

Figure 7: Total credits supply from projects with a post-2012 or post 2016 start

date (adjusted for issuance success rate)

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Domestic Demand and Supply

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Scenario 3: Vintage year restrictions

Assuming that CORSIA limits eligibility to the year (vintage) in which

emission reductions have been generated to either post-2012 or post-2016,

the total carbon credit supply would be as per Figure 8 below.

In this scenario, the total credit supply follows that of the ‘no restrictions’

scenario above as no other restrictions apply.

Figure 8: Total credits supply from projects with emission reductions are

generated either post-2012 or post-2016 (adjusted for issuance success rate).

Post 2012 supply in shown in light blue

Scenario 4: Project type restrictions

If the CORSIA scheme chooses to impose restrictions linked to project

types and excludes large scale hydropower projects (exceeding 20 MW) as

per the IATA Carbon Offset Programme guidelines, the total carbon credit

supply is expected to almost halve between 2012 and 2019, after which

point the large scale hydropower projects begin to drop out of the pipeline

(see Figure 9). By 2024 this project type accounts for only 7 per cent of total

supply, leaving this restriction with limited impact in later years. Overall, until

2035 a cumulative volume of 163 million credits is forecasted from the

current portfolio of projects.

The total amount of pre-2021 carbon credits is 86 million under this scenario

when post-2020 restrictions would apply to domestic projects.

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Figure 9: Credit supply, excluding large-scale hydropower

Scenario 5: Carbon standard restrictions

Turkey hosts both carbon projects registered under the Gold Standard and

the VCS. The credit volumes issued through these respective standards are

forecasted in Figure 10. If CORSIA were to restrict eligibility only to the Gold

Standard, or the Turkish registry would only be linked with the Gold

Standard’s, Turkey would be able to supply volumes up until 2035. If,

however, CORSIA were to allow only VCS credits or the registry linkages

would only connect to the VCS’s, then the ability to supply would rapidly

drop over a five-year period from 2019 to 2025 assuming the domestic

project pipeline does not grow from 2018 onwards.

The total amount of pre-2021 carbon credits is 65 million under the Gold

Standard and 70 million under the VCS, in a scenario where post-2020

restrictions would apply to domestic projects. Correcting for the 40 million

VERs already transacted between 2006 and 2018, the available amount is

further reduced to 25 million and 30 million for the two standards,

respectively. The difference between the supply from projects under the

Gold Standard and projects under the VCS is that most VCS projects opted

for a one-time 10 year baseline while most GS projects apply a seven-year

baseline that can be renewed twice.

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Figure 10: Credit supply from registered projects under the Gold Standard and

VCS

Below features a summary of the pre-2021 carbon credit supply volumes in

each one of the five assessed scenarios. The reported figures present total

volumes, including the 40 million carbon credits that have already been

transacted between 2006 and 2018.

Table 5: Overview of the pre-2021 and cumulative 2035 carbon credit supply

volumes under the five assessed scenarios (MtCO2e)

Scenario Type Pre-2021

carbon credit supply

Cumulative supply by

2035

Scenario 1 No restrictions 135 MtCO2e 212 MtCO2e

Scenario 2 Project start date

restrictions

26 MtCO2e 50.5 MtCO2e

Scenario 3 Vintage year restrictions 135 MtCO2e 212 MtCO2e

Scenario 4 Project type restrictions 86 MtCO2e 163 MtCO2e

Scenario 5 Carbon standard

restrictions

135 MtCO2e 212 MtCO2e

2.4 Potential Supply from New Turkish Carbon Projects Commissioned post-2020

Growth projections

Turkish energy demand growth is expected to average 4 – 6% annually until

2023. Combined with the government’s ambitions to accelerate the

transition towards low-carbon development, investments in new renewable

energy generation are expected to grow substantially in the years to

come.31 The Ministry of Energy and Mineral Resources (MENR) estimates

an additional USD 110 billion in renewable energy investments will be

needed to meet the growing demand, more than double the total amount

invested between 2005 and 2015.32 According to the government’s vision

2023, this is to lead to a share of renewables of 30% by that year.

31 C. Erdin and G. Ozkaya (2019) Turkey’s 2023 Energy Strategies and Investment Opportunities for Renewable Energy Sources. Sustainability Journal, 11, 2136 32 Embassy of the Kingdom of the Netherlands (2015) Renewable Energy Turkey: Opportunity?

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The previous section of this report presented potential supply scenarios of

carbon offsets from existing carbon projects in Turkey. To establish a

complete picture of the supply side over the timeframe of CORSIA, in this

section the potential additional supply from new renewable energy projects

to be commissioned post-2020 is estimated.

Supply model

The modelling of the potential supply of offsets generated by renewable

energy projects commissioned post-2020 has been based on

implementation forecasts presented in (i) the Vision 2023 strategy plan

prepared by MENR and (ii) independent research conducted by the SHURA

Energy Transition Center. Projections from both sources have been used to

establish an average implementation trajectory between covering the period

2020 – 2035.

Data from Vision 2023

The Vision 2023 strategy plan adopts the following implementation targets

per technology type:

34 GW capacity of hydro power plants;

20 GW capacity of wind power plants;

5 GW of solar power plants;

1 GW of geothermal energy; and

1 GW of installed capacity for biomass energy.

Based on the growth rates assumed in the Visions 2023 plan per

technology category in the periods 2015 – 2019 and 2020 – 2023, an

extrapolation of a growth trajectory has been made up until the end of 2035.

As summarised in Table 6, the results of this extrapolation indicate a total

installed capacity of renewables of 88.41 GW is expected to be reached by

2035, with close to half of the capacity being represented by hydropower

projects.33

Table 6: Overview of historical (*) and forecasted installed capacity values for

renewable energy in Turkey (GW)

Technology 2015* 2023 2030 2035

Hydro 25.52 34.00 35.86 37.25

Wind 5.66 20.00 27.82 36.77

Solar 0.30 5.00 7.67 10.92

Geothermal 0.41 1.00 1.33 1.77

Biomass 0.38 1.00 1.37 1.70

Total 32.27 61.00 74.05 88.41

Source: 2015 values represent historical records reported by MENR; 2023 values

are taken from the Vision 2023 strategy plan; 2030 and 2035 values have been

extrapolated by the Consultant.

33 A conservative approach has been taken for estimating the installed capacity for the year 2030. The model assumes that the year-on-year growth in investments slows after 2023, and averages at half the growth rate that the government assumes for the period running up to 2023.

Domestic Demand and Supply

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Data from the SHURA Energy Transition Center

The SHURA Energy Transition Center provides independent research on

Turkey’s renewable energy developments and development scenarios. The

platform was founded by a partnership of the European Climate Foundation,

Germany’s Agora Energiewende and the Istanbul Policy Center, and is

regarded as a reputable think tank.

Data of future renewable energy generation trends by the SHURA Center34

has been used in the supply model for the purpose of presenting an

alternative data set to the forecasts presented in the Vision 2023 strategy

plan. Given that the SHURA report only presents a forecast up to 2026, the

supply model has extrapolated growth until the end of 2035 in a similar

fashion to how data by MENR was analysed. The results presented in Table

7 show that while the forecasted capacities per technology type differ, this

deviation is not considerable overall. Extrapolated data from MENR result in

an expected installed capacity of 88.41 GW, whereas data from the SHURA

Center lead to a total potential installed capacity of 83.45 GW by the end of

2035.

Table 7: Overview of forecasted installed capacity values for renewable energy

(GW)

Technology 2016* 2026 2030 2035

Hydro 26.70 37.50 41.82 47.22

Wind 5.80 14.00 17.28 21.38

Solar 0.60 6.00 8.16 10.86

Geothermal 0.80 1.45 1.71 2.04

Biomass 0.46 1.24 1.55 1.95

Total 34.36 60.19 70.52 83.45

Source: 2016 values represent historical records obtained from MENR; 2026 values

are taken from the SHURA Center report; 2030 and 2035 values have been

extrapolated by the Consultant.

Potential additional supply

To derive data on potential additional supply of carbon offsets generated by

new renewable energy projects in the period 2020 – 2035, power

generation data (in GWh) has been estimated from the forecasted installed

capacities per technology type. The assumed capacity factors are: 35

32% for hydro power projects;

30% for wind power projects;

20% for solar power projects;

96% for geothermal;

75% for biomass.

To convert the resulting power generation data into tonnes of CO2e avoided,

a grid emission factor of 0.390 tCO2e / MWh36 has been assumed for the

year 2018, declining in a linear fashion to 0.260 tCO2e / MWh by the end of

2035 (reflecting the renewable energy capacity additions during that period).

Carbon projects will need to comply with additionality requirements as

applicable under the different Carbon Standards and possible Article 6

guidelines. It is assumed that post-2020 projects with insufficiently attractive

34 SHURA Energy Transition Center (2018) Increasing the Share of Renewables in Turkey’s Power System: Options for Transmission Expansion and Flexibility 35 Idem 36 IEA Statistics Methodology (2017) Interim Harmonised Baselines

Domestic Demand and Supply

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risk-return characteristics (due to less favourable locations or higher

investment cost) will persist, and that a share of the newly developed

projects may be eligible for certification and issuance of carbon credits or

emission reduction units. Given the difficulty in quantifying the degree to

which new capacity additions will be additional and recognising the risk that

not all renewable energy projects will be able to generate carbon credits in

the context of Turkey’s NDC, the following three scenarios for crediting have

been assumed:

Lower-end scenario, whereby 10% of the new installed capacity is

credited under a carbon standard;

Current carbon market coverage scenario, whereby 21% of the new

installed capacity is credited under a carbon standard;37

Higher-end scenario, whereby 30% of the new installed capacity is

credited under a carbon standard.

For these three scenarios it is assumed that the credits generated are in

addition to the proposed contribution of Turkey as described in its INDC. For

example, the INDC refers to a target capacity for wind power of 16 GW,

whereas the model uses a figure of 22 GW (average of the figures reported

by MENR and the SHURA Center). Double counting and double use will

need to be adequately accounted for – see Chapter 3 for further details.

Figure 11: Potential credit supply from new projects (period 2020 – 2035)

Figure 11 presents the results of the supply model, highlighting both the

expected annual generation volumes of carbon offsets, as well as

cumulative results over the period 2020 – 2035. In the low-end scenario,

cumulative supply of carbon offsets is estimated to reach 23.7 million

tonnes by the end of 2035. Assuming a scenario where the current carbon

37 As indicated on p.13 of this report, the total installed capacity represented by all 244 registered projects in Turkey is 8.9 GW. In 2018, Turkey had a total installed capacity of nearly 42 GW. This implies that around 21% of all renewable energy projects are currently registered under a carbon standard.

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Domestic Demand and Supply

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market coverage rate of 21% is maintained, the cumulative supply reaches

50.7 million tonnes. In the high-end scenario, the cumulative issuance

amounts to 71.1 million tonnes. In a scenario where carbon offsets from

hydropower projects are excluded under CORSIA, potential supply is

reduced by approximately half under each of the three scenarios.

Whereas the installed capacity grows steadily throughout the period 2020 –

2035, it is noteworthy that the accumulation of carbon offsets is slower than

the trend observed in projects that are currently registered. The reason for

this is the declining grid emission factor, which in existing carbon projects

has been fixed for a period of 7 to 10 years, and is as high as 0.600 tCO2e /

MWh.

Carbon Accounting in Turkey

25

3. Carbon Accounting in Turkey

Turkey is in a strong position to become a supplier of carbon credits and

internationally transferred mitigation outcomes in a post-2020 regime (see

text box 1). For the sale of carbon credits through CORSIA, enough

information should be available to assure confidence amongst potential

buyers that emission reductions stemming from Turkey are of high

environmental integrity and therefore eligible for use under the scheme. In

particular, Turkey must be able to manage its emissions reductions in a way

that double counting is avoided. If not managed and prevented, double

claiming could lead to a global increase of GHG emissions.38 Preventing

double counting of emission reductions is therefore a crucial aspect of

securing environmental integrity of any trading system.39

Double counting can occur in the event of a double issuance (two units are

issued for a single emission reduction), double claiming (two entities claim

or use the same emission reduction for achieving their targets), or double

payment (where the same emission reduction is paid for twice). This study

is restricted to double counting risks (a) originating from double issuance

and double claiming for credits generated in the Turkish energy sector, as

such contribute to Turkish mitigation efforts under the PA and at the same

time used by aircraft operators to meet emission reduction obligations under

CORSIA. These considerations are based on the following key

assumptions; and (b) associated with CORSIA and the Paris regime, thus,

from 2021 onwards.

These considerations are based on the following key assumptions:

Turkey ratifies the PA and its INDC becomes the country’s official

NDC;

Turkey’s NDC continues to have an economy-wide scope, thereby

covering the energy sector; and

Turkey’s NDC target is below business as usual (BAU);

Finally, this analysis discusses the issue of potential double

counting from 2021 onwards.40

38 Schneider and La Hoz Theuer (2017) Using the Clean Development Mechanism for Nationally Determined Contributions and International Aviation. Assessment of impacts on global GHG emissions. Available at https://bit.ly/2LJm0fA 39 Other elements considered in the context of environmental integrity include ensuring emission reductions are real, verified, long-term, additional and make use of a conservative baseline. These aspects are, however, outside the scope of this assessment. 40 While listed as an Annex-I country under the Kyoto Protocol, Turkey does not have a pre-2020 emission reduction target, nor did it host any JI projects. As such, no pre-2020 double counting can take place. Whether or not pre-2020 vintages will be eligible under CORSIA is an issue of unit eligibility rather than double counting, and will therefore not be discussed in this chapter.

Carbon Accounting in Turkey

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Text box 1: Internationally Transferred Mitigation Outcomes (ITMOs)

Parties to the PA can support the mitigation efforts of other Parties as

part of voluntary partnerships. This can include the transfer of mitigation

outcomes ‘that can also be used by another party to fulfil its nationally

determined contribution’ (Article 6.2). Such transfers can take place as

part of a formal emission trading arrangement (with the issuance and

transfer of a carbon unit) or in the context of results-based payments

without a transfer of a carbon unit.

The PA also defines a sustainable development mechanism that allows

private and public entities to support mitigation projects that generate

transferrable GHG emissions (Article 6.4). Programmes and projects

developed under this new mechanism can issue tradable carbon units,

which feature recalls the operations of the Clean Development

Mechanism. Programmes and projects will need to have a net positive

mitigation effect, which means that not all emission reductions generated

can be used to offset emissions generated elsewhere.

3.1 Risks of Double Counting

3.1.1 Scenarios of Double Counting Considered for Turkey

There are two general scenarios through which double counting may occur

in Turkey in the context of CORSIA: double issuance and double claiming.

Double issuance can materialise in two scenarios: within one programme or

mechanism, or between multiple GHG offsetting programmes or

mechanisms that cover the same emission reductions. Double issuance

would occur if, for instance, an emission reduction generated in the energy

sector in Turkey results in a unit that is issued by both the Gold Standard

and the VCS. Solid mechanism design41 and checks by verifiers, as well as

consistent tracking and recording of units are instrumental to avoid double

issuance.42 A registry design, which allows for the tracking and recording of

units, is discussed in more detail in Section 3.2.2.

Double claiming, in turn, occurs if the same emission reduction is claimed

both by a host country where the emission reduction took place, and a party

that purchases the emission reduction unit to achieve its mitigation target. In

the considered scenario, the risk for double claiming would materialise if

Turkey uses an emission reduction unit for compliance with the country’s

NDC targets, while the same unit is claimed by an aircraft operator for

compliance with CORSIA offsetting obligations. Solid accounting rules and

the use of a credit and debit approach (in line with guidance on

“corresponding adjustments” to be operationalised by the PA) can help

avoidance of double claiming. These are discussed in Section 3.2.1.

41 This could include, for example, contracts signed by project owners, which state that no emission reduction crediting is sought by a project under another crediting mechanism. 42 Schneider (2018) Options for UNFCCC to avoid double counting with CORSIA. PowerPoint for the workshop “Robust accounting under Article 6 of the PA”.

Carbon Accounting in Turkey

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Figure 12: Considered situations of double counting

3.1.2 Existing and Emerging International Guidance on Double Counting

The need to avoid double counting of emission reductions is fully

recognised in existing and emerging international carbon market

mechanisms and regimes, both mandatory and voluntary.43 Below we

provide an overview of the rules designed to prevent double counting in key

regimes.

Joint Implementation (Kyoto Protocol)

Under Joint Implementation, part of the Kyoto Protocol, Annex I countries

can acquire emission reduction credits through a project in another Annex I

country. To participate, each country calculates a budget of Assigned

Amount Units (AAUs), based on their emission reduction commitments

under the Kyoto Protocol. An emission reduction project generates

Emission Reduction Units (ERUs), which are converted from the pool of

AAUs in the host country. This ensures that emission reductions are only

counted against one Party’s target, avoiding double counting.

Article 6 market-based approaches (PA)

Ongoing negotiations on the new cooperative and market mechanisms

under Article 6 of the PA are shaping guidance to avoid double counting.

Article 4.13 of the PA requires parties to account for their NDCs in a manner

that promotes environmental integrity, transparency, accuracy,

completeness, comparability and consistency, and ensures the avoidance

of double counting. Similarly, Article 6.2 provides that voluntary cooperation

among parties shall apply robust accounting to ensure the avoidance of

double counting. The Paris Decision clarifies that avoidance of double

counting is to be prevented on the basis of “corresponding adjustments”.44

Moreover, Article 6.5 of the PA also prohibits a host-country to use Article

6.4 emissions reductions to demonstrate the achievement of its NDC, if

these are used by another party to demonstrate achievement of the other

43 The Kyoto Protocol establishes accounting rules, through economy-wide targets and emission budgets that avoid double counting. The PA, too, requires countries to avoid double counting (Article 4.13; Article 6.2; Article 13). 44 UNFCCC COP Decision 1/CP.21, para 36.

Carbon Accounting in Turkey

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party’s NDC, thereby preventing an emission reduction or removal is double

claimed.

CORSIA For CORSIA, the principle to avoid double counting is mentioned as part of

its core elements in ICAO Resolution A39-3 Art. 21 and 25. CORSIA

restricts the use of emission reduction units to those units that comply with

ICAO rules on double counting,45 requiring participating programmes to

provide safeguards to avoid double counting, issuance and claiming, as

recommended by the ICAO Council Committee on Aviation Environmental

Protection (CAEP).46 These double counting requirements will be developed

as part of the Eligible Emissions Unit Criteria (EUC), which determine the

eligibility of units for CORSIA offsetting obligations.47 The EUC will take into

account relevant developments in the Article 6 negotiations.48

In the first draft of the EUC,49 eligibility criteria are applied at the programme

level, meaning that full programmes could be labelled eligible for

participation in CORSIA.50 Examples of programmes are the Gold Standard

and the VCS. The criteria cover both programme design elements, such as

governance requirements, as well as criteria on avoidance of double

counting, issuance and claiming of offsets, in the context of evolving

national and international regimes for carbon markets and emissions

trading. Finally, the EUC require that “eligible offset programs demand and

demonstrate that the host countries of emission reduction activities agree to

account for any offsets units issued as a result of those activities such that

double claiming does not occur between the aeroplane operator and the

host country of the emissions reduction activity.” 51,52

Voluntary standards Voluntary standards have been applying double counting safeguards as

part of their core elements. For example, Gold Standard does not allow its

projects to register with other standards, and a geographical project area

cannot overlap with the geographical boundary of another, similar project

under any compliance standard.53 To ensure this, a project developer is

required to confirm it hasn’t sought registration with any other standard.

The VCS concentrates on preventing double counting in the form of double

selling and double payment. Its revised double counting rules from 1

February 2012 determine that, a situation of double counting is considered

only if a GHG emission reduction or removal is monetised by two entities.54

Projects registered under the VCS are required to provide evidence that

their emission reductions are not counted or used under any other

mechanism that includes GHG allowance trading.

45 ICAO Resolution A39-3 Art. 21: “emission units generated from mechanisms established under the UNFCCC and PA are eligible in use for CORSIA, provided that they align with decisions by the Council […] including on avoiding double counting […]”. 46 CAEP (2016) CAEP/10 Recommendations. 47 The EUC are developed by the ICAO Council, with the technical contribution of CAEP, and will be finalised no later than 2021. See https://bit.ly/2LMTxp5. 48 ICAO Assembly Resolution A39-3: Consolidated statement of continuing ICAO policies and practices related to environmental protection – Global Market-based Measure (MBM) scheme. Para 20. Available at https://bit.ly/2LbDxfn. 49 The EUC draft was circulated for feedback amongst ICAO members in December 2017. 50 Carbon Market Watch, Transport and Environment (2018) Briefing for ENVI MEPS on Draft Rules for ICAO’s Global Offsetting Mechanism (CORSIA). Available at https://bit.ly/2xtND9k. 51 ICSA (2018) Understanding the CORSIA Package. Available at https://bit.ly/2L5O6kb. 52 Biniaz (2017) ICAO’s CORSIA and the PA: Cross-Cutting Issues. C2ES. Available at: https://bit.ly/2sk12f9. 53 Gold Standard (2017) Gold Standard for Global Goals Principles and Requirements, para 2.2 d. Available at https://bit.ly/2J2y7XH. 54 VCS (2012) VCS Policy Brief. Double Counting. Available at https://bit.ly/2Ja0sLr.

Carbon Accounting in Turkey

29

3.2 Considerations on Addressing Double Counting

Effective procedures and/or mechanisms to avoid double counting should

cover the entire life-cycle of a unit, including issuance, transfer and final

use.55 The different risks of double counting as identified above should be

addressed with appropriate counter measures. This section considers

relevant elements of approaches adopted or being designed under the

UNFCCC, as well as at domestic level by countries making use of

(mandatory or voluntary) crediting systems. The section starts with the debit

and credit approach to address double claiming of emission reductions, and

then considers the use of registry systems to avoid double issuance and

use of emission reduction units.

3.2.1 Addressing Double Claiming: Debit and Credit approach

A credit and debit or double-entry bookkeeping approach, whereby

emission reductions or units transferred between parties are debited by one

party and credited by the other, are the central means to avoid double

counting in cooperative approaches under Art. 6 of the PA.56 This debit and

credit system is known as corresponding adjustments in the PA jargon and

is expected to be fully operationalised by the end of 2019, at COP 25, in

Chile.

The debit and credit system is also applied, for instance, by the Kyoto

Protocol and by the VCS. Under Kyoto, Annex I countries with a

commitment inscribed in Annex B of the Protocol were allocated a pool of

serialised electronic units (Assigned Amount Units – AAUs) equivalent to

the countries’ emissions budget calculated for each commitment period.

Whenever a host country opted to make use of the Joint Implementation

mechanism and authorised the issuance of an Emission Reduction Unit

(ERU) for a mitigation project, an equivalent amount of AAUs to the JI

project emission reductions are converted into ERUs for the host country.

The ERU could, therefore, be transferred out of the host country without

leading to a double counting of units. Similarly, the VCS determines that,

when a mitigation activity takes place in an Annex I/B country, AAUs

equivalent to the number of VCUs being requested must be cancelled

before VCUs are issued.

The use of corresponding adjustments under the Paris regime is necessary

to avoid that two country parties claim the same emission reduction towards

their respective NDCs. Guidance is also being considered to avoid the use

of an emission reduction towards achievement of a country’s NDC and the

use of the same emission reduction for a purpose other than towards

achievement of its NDC, such as under CORSIA. A number of alternatives

for the method and timing of corresponding adjustments are being

discussed under the UNFCCC, including:

1. When corresponding adjustments are needed (the moment in time

they should be applied and for which instances), and how these

corresponding adjustments need to be reported by countries;

2. Whether countries transacting mitigation outcomes need apply

corresponding adjustments on the same accounting basis;

55 Schneider, Kollmus and Lazarus (2014) Addressing the risk of double counting emission reductions under the UNFCCC. Stockholm Environment Institute (SEI). Available at https://bit.ly/2H7yyK7. 56 Schneider, Kollmus and Lazarus (2014) Addressing the risk of double counting emission reductions under the UNFCCC. Stockholm Environment Institute (SEI). Available at https://bit.ly/2H7yyK7.

Carbon Accounting in Turkey

30

3. Whether participation in Art. 6.2 cooperative approaches will require

countries to have their own registry system in place or if access to a

central registry or a distributed ledger suffices;

4. Whether Article. 6.4 units must be subject to corresponding

adjustments, including in situations of first international transfer and

the use of crediting to achieve the conditional component of NDCs of

host countries, and cancellation for voluntary climate action or as

results-based climate finance.57

Below features an overview of the possibilities and alternatives being

considered for method and timing for effecting corresponding adjustments.

Method for corresponding adjustments Two main methods for ensuring corresponding adjustment are considered.

From an accounting perspective, both methods equally ensure

environmental integrity by guaranteeing that no increase in emission

reductions will take place as a result of a transferred emission reduction

(see Figure 13).

Figure 13: Methods for corresponding adjustments for Internationally

Transferred Mitigation Outcomes (ITMOs)

Source: Climate Focus, Koru Climate, Perspectives (2017) Features and Implications of NDCs for Carbon Markets

Emission-level adjustments (method 1), where the GHG inventory

of the participating country is the starting point for the calculations. The

adjustment does not change the inventory itself, rather, parallel tables

in the inventory show an adjustment to the ‘inventory emissions’,

resulting in the ‘accounted emissions’. Emission-level adjustments are

57 SBSTA 48 Revised draft elements of guidance on cooperative approaches referred to in Article 6, paragraph 4, of the PA. Version of 8 May 2018.

Carbon Accounting in Turkey

31

relatively simple as they are based directly on a GHG inventory and do

not require calculating an emissions budget.

Budget-based adjustments (method 2), where NDCs are converted

into emission budgets and adjustments are made directly to these

budgets. The resulting ‘adjusted budget’ represents the emissions of a

country including transferred emission reductions. Opting for budget-

based adjustments requires the calculation of an emissions-budget

based on the NDC.

The two accounting methods are not mutually-exclusive, and countries may

eventually be free to adopt either approach, or a mix of approaches for

internal or bilateral purposes.58

Timing of corresponding adjustments Four alternatives are being considered under the Paris Rulebook

negotiations for the timing of corresponding adjustments. Corresponding

adjustments could be made at the moment of creation or issuance of a unit,

or when recorded in the centralised accounting database.

A second option would be to apply the corresponding adjustment at the

moment of transfer of a unit to a recipient party. By applying a

corresponding adjustment at the moment of transfer, the transferring party

recognizes that it will no longer use the emission reduction, independent of

how the acquiring party will use the unit. This approach requires a relatively

simple accounting process, as little communication between the transferring

and acquiring party is required.59 Moreover, there would be an atmospheric

benefit if the unit were not used by the acquiring party.

A third option would be to have a corresponding adjustment at the moment

of use of an acquired unit by the recipient for compliance with its NDC. This

would require a process that informs a host country that a transferred unit is

used by the acquiring party. Until this happens, the host country has no

certainty over whether it may use the emission reduction.

Finally, corresponding adjustments could occur periodically, for example at

the time a country is submitting its national GHG inventory report, as per

Article 13.7 of the PA, or when demonstrating NDC achievement.

3.2.2 Addressing Double Issuance and Use: Full-Fledge Registry

Accurate and transparent tracing of emission reduction units is a second

element to address double counting. A registry system contributes to

avoiding double issuance of units and can facilitate the use of

corresponding adjustments.

A system used to register emission reduction units can take a variety of

forms, ranging from credit registries that have a bookkeeping function, to

databases or a collection of information on the rules and procedures of a

programme. A broad distinction between a “register” and a “registry” can be

made. A register is a data and reporting management tool, recording

information specific to a carbon unit such as serial numbers, identity or

location. A full-fledge registry or “transaction registry”, on the other hand, is

58 Climate Focus, Koru Climate, Perspectives (2017) Features and Implications of NDCs for Carbon Markets. For SEA, BMUB and FOEN. Available at https://bit.ly/2Jf0npf. 59 Ibid

Carbon Accounting in Turkey

32

a more elaborate system that functions as a transaction platform. It is often

an online database that records emission reduction units and has the

capacity to transfer carbon units between account holders within the registry

or to other transaction registries or a trading platform. Importantly, the

credits held in a transaction registry are normally treated as financial assets,

resulting in more stringent governing rules and regulations.60

Emerging requirements from CORSIA and the Article 6 negotiations give

insight into what should be considered in designing a national registry which

is both nationally appropriate as well as internationally compatible, so that

can be linked with the central CORSIA registry.

CORSIA The set-up of CORSIA requires that participating states develop

(individually or in cooperation with others) a registry system that can safely

store and process information related to offset transactions, and importantly,

that can communicate with the central CORSIA registry.61 This registry will

provide records of international aviation emissions, operator’s offsetting

requirements, and records on the purchase, ownership, transfer and

surrender of emission units within the registry.62 Registries of parties wishing

to interact with the CORSIA central registry should be compatible with its

features.

The ICAO Council will develop policies and guidance material to support the

establishment of registries by 2018 as Member States are requested to

develop ‘necessary arrangements’ for the establishment of their own

registries or participation in group registries, following ICAO guidance.63

For a national registry to be able to communicate with the CORSIA central

registry, it will need to have an electronic database that stores the

information that is compatible with the information stored in the CORSIA

database. Moreover, the registry should be equipped and authorised to

transfer units to an external registry. Finally, the registry should record MRV

information on emission reduction units that enables public verification of

the transferred units. This may include project documentation and

verification reports for the relevant emission reductions.

UNFCCC and the PA As part of the ongoing negotiations on cooperative approaches and market

mechanisms in Article 6 of the PA, Parties are negotiating required

elements of registries as a possible participation requirement for market-

based approaches. If registries are eventually required by CMA guidance,

they would likely be required to perform some, or all, of the functions

below:64

Creation, issuance, transfer and acquiring of units, and, to facilitate

this, have an issuance, holding, transfer, acquisition, cancellation,

retirement and share of proceeds account. Optionally, registries

could be required to have a cancellation account for overall

60 Partnership for Market Readiness (PMR) and Forest Carbon Partnership Facility (FCPF) (2016) Emissions Trading Registries: Guidance on Regulation, Development, and Administration. World Bank, Washington, DC. 61 ICAO Seminar on CORSIA: Emissions Units and Registries. Available at: https://bit.ly/2sqthbr. 62 ICAO Secretariat (2017) CORSIA. 5. Emission Units and Registries. PowerPoint presentation. Available at https://bit.ly/2J2CXDW. 63 ICAO Resolution A39-3: Consolidated statement of continuing ICAO policies and practices related to environmental protection – Global Market-based Measure (MBM) scheme. Para 20. Available at https://bit.ly/2LbDxfn. 64 SBSTA 48 Revised draft elements of guidance on cooperative approaches referred to in Article 6, paragraph 2, of the PA. Version of 8 May 2018.

Carbon Accounting in Turkey

33

mitigation of global emissions. This is a political decision to be

made by the negotiating parties;

Determining unique serial number for each unit;

Demonstrating that units have been used towards achievement of

an NDC;

Ensuring the avoidance of double counting.

Box 2: Features of Existing Registries

Existing registries give insight into the different elements that can be considered

when assessing the options to mitigate the risk of double counting in the Turkish

context:

National registries under the UNFCCC. The Kyoto Protocol introduced

emissions trading into the international climate regime and required

developed countries to set up national registries to account for their

emission allowances. The registries have to be able to process different

types of carbon units (AAUs, ERUs, CERs and RMUs), and contain

accounts in which units are held by the government, or an entity authorised

to hold and trade the units. The registries are able to ‘settle’ emission

trades by moving units between sellers and buyers, and are linked to the

International Transaction Log, which registers transactions in real time.65

Emission Trading System (ETS) registries are designed as a central

registry that holds different accounts for parties participating in the

scheme.66 The registry tracks the exchange and surrender of units by

entities operating under the scheme. An additional transaction log can

serve as an additional system to the registry, to automatically check and

record transactions between the accounts, with the specific aim of

avoiding double counting.67

Registries of project mechanisms serve specific emission trading

mechanisms.68 These registries normally include accounts into which units

are issued and then transferred outward (e.g. to an account in a national

registry or registry under an emission trading scheme). No inward

transfers are typically permitted.

Registries of voluntary carbon markets often co-exist with compliance

markets and have established their own registries. The infrastructure for

these registries is often provided externally, and consists of a web-based

platform, an account management tool for registration, numbering,

tracking and retirement of offset units.

Institutional and legal considerations

Following Article 6 guidance and emerging CORSIA requirements, as well

as experience with existing registry systems, institutional and legal

considerations are relevant in designing an appropriate registry system. The

institutional set-up of a registry determines the allocation of responsibilities

amongst the different participating stakeholders: the regulator, the

administrator and the account holders. The responsibilities of each

stakeholder can be allocated through legislation or contractual 65 UNFCCC Registry Systems under the Kyoto Protocol. Available at https://bit.ly/2LbEft3 Accessed 17 May 2018. 66 For example, the EU ETS has a Union registry that is managed and operated by the European Commission, and each participating country has a national registry section. More information available at https://bit.ly/2L8XnI5. 67 See, for example, the transaction log of the EU ETS. More information available at https://bit.ly/2L8XnI5. 68 See, for example, the CDM registry, which issues and registers CERs that could be transferred to national registries.

Carbon Accounting in Turkey

34

agreements,69 for example, contracts with parties that wish to hold an

account in the registry. Table 8 gives an overview of the different entities

and roles involved.

Table 8: Entities involved in a registry70

STAKEHOLDER RESPONSIBLE ENTITY TASKS

Registry

regulator

Public authority that has power and

resources to investigate and

intervene when appropriate

Ensuring the correct functioning of

the system; ensuring that the

registry complies with national

regulation; deciding over the

allocation of carbon units

Registry

administrator

Government entity or an

independent (private) third party,

specialised in markets and related

infrastructure

Can be the same entity as the

registry regulator

In charge of the management,

operational and supporting

processes on a day-to-day basis,

such as monitoring transfers

Account holders Responsible entity and owner of

the units held in the account

Transfer and cancellation of units

In turn, the legal framework covering the registry system is dependent on

the type of system that is preferred – a transaction registry requires a more

complex legal framework than a register, given that the units in a

transaction registry can be treated as financial assets, requiring a more

stringent supportive legal framework. Importantly, legal rights to carbon

units should be treated similarly among linked registries to avoid legally

incompatible platforms. Table 9 gives an overview of primary and secondary

legislation that should be considered when setting up a full fledge registry.

Importantly, a transparent and sound legal framework enhances the

confidence of investors to participate in the mechanism.

69 Partnership for Market Readiness (PMR) and Forest Carbon Partnership Facility (FCPF) (2016) Emissions Trading Registries: Guidance on Regulation, Development, and Administration. World Bank, Washington, DC. 70 Partnership for Market Readiness (PMR) and Forest Carbon Partnership Facility (FCPF) (2016) Emissions Trading Registries: Guidance on Regulation, Development, and Administration. World Bank, Washington, DC.

Carbon Accounting in Turkey

35

Table 9: Legal framework of a registry system71

LEVEL SCOPE

National,

primary

legislation

Establishing the legal status of the registry

Authorisation of body to develop necessary rules and

tools, including the database, and the legal status of the

registry administrator

Monitoring, reporting and verification obligations for

domestic programs

Transparency requirements

Regulating the use of data, including protection of

personal and confidential information

If required, adaptation of existing laws and regulations on:

Property law, including legal nature of a carbon unit

Enabling electronic and automated trading of units

Financial instruments to cover carbon credits

Tax provisions

Insolvency

Secondary

legislation

Regulation of the use of data

Data formatting

Data reporting requirements

Account holder rights

3.3 Emission Reductions Management to Avoid Double Counting in Turkey As discussed in the previous sections, negotiations on the rules and

procedures governing Article 6 of the PA are ongoing and are expected to

be finalised by the end of 2019. Likewise, the CORSIA SARPs are still to be

adopted by the ICAO Council. Based on the ongoing negotiations in both

fora, and on existing practice of the Joint Implementation, voluntary carbon

markets and existing ETS, the following components are likely to be needed

to prevent double counting:

a debit and credit approach will be required for internationally

transferred emission reductions that take place in a sector covered

by the host country’s NDC.

the establishment of a registry for those countries willing to engage

more meaningfully with markets (as opposed to sporadic one-off

transactions on a government-to-government basis).

participation in CORSIA will also require the establishment of a

registry system.

Turkey established a national registry for voluntary carbon markets in 2010.

Launched by the Turkish Ministry of Environment and Forestry, the registry

is regulated by the Communiqué on Procedures for Registration of

Greenhouse Gas Emission Reduction Projects.72 While Turkey has long

been engaged in trading certificates for carbon projects in the voluntary

71 Ibid 72 Çevre ve Orman Bakanlığı (2010) Sera Gazi Emisyon Azaltımı Sağlayan Projelere: İlişkin Sicil İşlemleri Tebliği. Resmî Gazeteç Available at: https://bit.ly/2xIsZCx.

Carbon Accounting in Turkey

36

carbon markets (since 2005), the registration of projects was dispersed

(projects were registered under the Gold Standard and VCS with no

centralised overview of the number of projects and their emission reductions

in place).73 The national voluntary carbon registry serves to register and

monitor voluntary carbon projects and record transactions.74 Thus far, there

are 14 projects registered in the national voluntary carbon registry, while

around 300 Turkish carbon projects have been registered in the two

registries used by the two carbon standard (Markit and APX).

Whereas accounting through corresponding adjustments and the

establishment of a registry system comprise the elements to address double

counting, as required for participation of the Turkish energy sector in

CORSIA, Turkey can consider to implement additional regulations to

facilitate the avoidance of double counting and more quickly position the

country as a credible and robust supplier of offsets.

The usage of Turkish emission reductions domestically and internationally

could be regulated by establishing an emission reduction management

system (see Table 10).75 The management system would determine the use

of which type of emission reduction units is limited to domestic use and

NDC compliance, and which emission reductions can be transferred or

traded internationally. Such a system would contribute to eliminating double

claiming, as each emission reduction is transparently earmarked for either

domestic or international use, excluding the possibility of claiming the unit

both by the host country and acquiring party. Moreover, having in place a

transparent management system for the usage of emission reductions

creates predictability for investors looking to finance renewable energy and

energy efficiency projects and technologies in Turkey. As such, the

regulated system can steer investments in the Turkish energy sector.

Table 10: Regulating the use of emission reductions post 2020/2021

Crediting pre-2020/2021 Crediting post 2020/2021

Under this scenario, these

credits relate to emission reductions

realised before the start of the

Turkish NDC. As such, there is no

risk of double claiming in the context

of NDC compliance.

Under this scenario, credits

relate to emission reductions realised

after the start of the Turkish NDC.

There is therefore a risk of double

claiming.

Implication:

if allowed by CORSIA’s

eligibility criteria.

Implication:

Scenario 1: no restrictions.

Voluntary carbon project portfolio will

remain in position to issue carbon

credits that can be purchased under

CORSIA.

Scenario 2: Management through a

set-aside. Can also include (national

or international) restrictions on types

of projects, vintages, etc.

73 UNDP (2010) Türkiye'nin artık bir karbon sicili var. Available at https://bit.ly/2J9XJBD [English and Turkish].

74 Çevre ve Orman Bakanlığı (n.d) Gönüllü Karbon Piyasalarında Kayıt Sistemleri. Available at

https://bit.ly/2kDNU0r [English and Turkish]. 75 This management system could form an integral part of the legal framework that will regulate NDC implementation in Turkey.

Carbon Accounting in Turkey

37

In light of the above, different regulatory arrangements for managing

emission reductions can be considered.

I. Allow the private sector to continue engaging in international

transfers with an obligation to report such transfers, and

without any regulatory import or export restrictions. To avoid

double counting, Turkey essentially needs to ensure that upon

receiving the unit transfer information an accounting adjustment (a

debit or credit, as applicable) is made for each emission reduction

or mitigation outcome transferred internationally and then used by

another country or entity under e.g. CORSIA or the UNFCCC. A

registry system can ensure this is achieved in a consistent and

transparent manner, facilitating tracking and reporting of a high

volume of transactions and units.

Restrictions may however be relevant and needed if Turkey opts to

establish an emissions management strategy that secures achievement of

its NDC, while tapping into new international carbon market revenue

streams:

II. Create a separate account for ERs that may be sold to CORSIA.

A second consideration foresees the creation of a “separate

account” or “set aside” for emission reductions that are earmarked

for CORSIA. This management system would be modelled after the

Joint Implementation set-aside, where participating countries have

chosen to create a set aside amount of ERUs. This reserve is then

cancelled progressively while the ERUs are issued. In this scenario,

Turkey would determine a set amount of emission reductions that is

to be exclusively used for CORSIA, based on considerations such

as technologies most likely to be eligible for CORSIA, abatement

costs, and likelihood of impacting negatively on the country’s own

NDC achievement, among others. The credits in this separate

account are cancelled progressively while they are issued to project

developers that implement eligible projects. The emission reduction

units in the set aside are earmarked for CORSIA usage, and as

such cannot be used for domestic compliance purposes and avoids

double claiming of these units. Moreover, the set aside will create

competition amongst investors that look to sell credits for CORSIA

compliance want to participate in CORSIA as credits are allocated

on a first-come first-served basis. This could accelerate sustainable

energy investments in the Turkish energy sector.

In both scenarios, Turkey has the option to buy international credits in case

of an NDC shortfall. Applying similar reporting procedures and accounting

adjustments that provide for environmental integrity in an export scenario,

Turkey could source international credits from the international market for

the purposes of meeting its NDC obligation.

Considerations

38

4. Considerations

The considerations presented in this final chapter are grouped around (i)

understanding the implications CORSIA will have and can have on the

Turkish carbon market; (ii) management of emission reductions generated

pre- and post-2021; and (iii) the steps to be taken by the Turkish

government to ensure environmental integrity of its climate actions.

4.1 CORSIA and the Turkish Carbon Market

The implications of the final offset eligibility criteria agreed under

CORSIA on the domestic carbon credit supply

CORSIA is expected to impose wider governing principles for eligible offsets

rather than defining specific eligibility criteria on the individual project level.

This implies that voluntary schemes including the Gold Standard and the

VCS will likely be included, and that at least a share of the emission

reductions generated by Turkish carbon projects will be eligible for

compliance.

The different scenarios presented in Chapter 2 provide insight into how

existing domestic supply will compare against the expected demand coming

from the Turkish aviation industry. The outcome indicates that when the

base case scenario supply is adjusted for the volumes of Turkish VERs

already transacted (c.a. 40 million in the period covering 2006 to 2018), the

current portfolio of projects will not be sufficient to meet the domestic

demand of the Turkish airline operators that will be covered under CORSIA.

As illustrated in Figure 14, the total cumulative supply of available credits

reaches 170 million by 2035 (light green line), against the 196 million

demanded by the domestic airline industry under the medium growth

scenario (orange line) and 402 million under the high growth scenario (red

line). This outcome is based on a legacy supply of projects and therefore

would allow for opportunities for additional credit supply from new projects –

domestically or abroad. When potential supply from new renewable energy

capacities installed between 2020 – 2035 is included in the supply model,

under the medium scenario an additional 50.7 million tonnes could be

added (dark green line). Similarly, demand scenarios are considered only

from the Turkish domestic perspective, while international aircraft operators

may also represent a source of demand for Turkish carbon credits.

Considerations

39

Figure 14: Comparing expected domestic demand for carbon credits from

Turkish aircraft operators and base case supply adjusted for already

transacted volumes (in cumulative terms)

When the volumes from the more restrictive supply models are assumed, it

becomes evident that existing domestic supply will not meet the future

demand projections from Turkish aircraft operators. These operators will

also be able to source from carbon projects abroad.

Figure 15: Comparing expected domestic demand for carbon credits from

Turkish aircraft operators against more restrictive supply scenarios

Impact of the assumed growth rate of emissions from Turkish aircraft

operators

The analysis presented in this report builds on the CO2 emissions growth

rates shared by the DGCA. These include 4 per cent per year in the low

growth scenario, 8 per cent per year in the medium growth scenario and 12

per cent per year in the high growth scenario. These growth projections

-

50

100

150

200

250

300

350

400

450

M t

CO

2e

Low demand (annual) Medium demand (annual)

High demand (annual) Supply (available VERs)

Supply (new additions)

-

50

100

150

200

250

300

350

400

450

M t

CO

2e

Low demand (annual) Medium demand (annual)

High demand (annual) Supply (start date post-2016)

Supply (no hydropower) Supply (vintage post-2016)

Considerations

40

considerably exceed ICAO’s medium scenario forecast of annual global

aviation emissions growth of approximately 3 per cent.

Current projections suggest around 3 to 3.5 billion tonnes of CO2 may need

to be offset under CORSIA globally between 2021 and 2035. Taking the

DGCA’s growth projections, it appears that Turkey would be responsible for

over 10 per cent of total demand under the high growth scenario, or 6 per

cent when the medium growth scenario is used. This is on the high end.

While it is recognised that growth of Turkey’s aviation is expected to

outperform this global average growth rate, the DGCA should evaluate

whether these growth projections are realistic. It would be advisable for the

DGCA to consider preparing more detailed scenario models assessing the

impact of lower growth rates in future years combined with the effect of

efficiency measures, such as fuel and operational improvements.

To provide insight into the potential range of domestic demand, Chapter 2

extrapolates the demand coming from Turkish aircraft operators assuming

ICAO’s 3 per cent medium growth trajectory. Under such assumption, total

demand from Turkey is expected to reach 32.4 million tCO2, versus the 196

million tCO2 projected under the medium growth rate scenario provided by

the DGCA. This would be equivalent to 1 per cent of total global demand

foreseen under CORSIA, and could be fully met by domestic carbon

projects under most supply scenarios.

4.2 Issues to be Considered in Management of Emission Reductions

Distinction between pre- and post-2021 emission reductions

This report makes a distinction between emission reduction units that are

generated prior to the end of 2020 and those that are created from 2021

onwards. The reason for this separation is Turkey’s NDC implementation

timeline, which covers the period 2021 to 2030.

Crediting pre-2021

While the use of Turkish carbon credits generated from the start of 2021

may introduce double counting risks in the context of the NDC, emission

reductions generated prior to 2021 do not. Depending on the final eligibility

criteria to be agreed by the ICAO Council later this year, currently registered

renewable energy and energy efficiency projects in Turkey would be able to

generate up to 170 million tCO2 (base case scenario adjusted for issuance

success and the volumes already transacted). Both Turkish and

international aircraft operators would be able to use these eligible credits for

offsetting.

Once the offset eligibility criteria are approved by ICAO, aircraft operators

around the world will start implementing offset purchase strategies that take

into account both the timing and certainty of delivery and the associated

purchase cost. To incentivise sourcing of Turkish carbon credits by aircraft

operators, the Turkish Government could consider the organisation of a

targeted campaign that communicates the quality of the Turkish emission

reduction projects over international counterparts. This could be linked to

the higher-level ambition of Turkey in the context of its PA pledges, or in

relation to its renewable energy targets or National Energy Efficiency Action

Plan. A functioning registry and accounting system will also need to be put

Considerations

41

in place to properly track units and avoid the risk of double counting issues

(see further below).

Crediting post-2021

Countries are currently in the process of negotiating a new rulebook under

the Paris regime. This includes guidance for bilateral cooperative

approaches between governments (Article 6.2 of the PA) and modalities for

a new centralised mechanism (Article 6.4 of the PA). Whereas these

mechanisms may at some point replace the current carbon market

infrastructure, there is likely to be a transition period during which carbon

markets operating as we know today will continue to exist once the NDC

compliance cycle starts (2020 for most countries, 2021 in the case of

Turkey).

One possible scenario is that the current voluntary carbon project portfolio

will remain in the position to issue emission reduction offsets post-2021,

which in turn may be purchased by compliance buyers covered under

CORSIA. Alternatively, to meet its NDC commitments the Turkish

government may need to impose certain restrictions that would limit carbon

projects from generating transferrable emission reduction units post-2021,

which in turn would reduce the potential supply coming from the Turkish

energy sector and could restrict the crediting of new projects. Restrictions

on the transferability of project types could relate to the project start date,

project types, and the degree to which these activities are covered under

Turkey’s NDC. Whether Turkey imposes such restrictions will depend on the

country’s ability to achieve its current NDC target, as well as the potential

for increased ambition if the NDC is updated. It will also depend on the

actual demand for carbon offsets being generated by the Turkish airline

industry, which could be material.

While the use of carbon credits with future vintages will likely need to be

accounted for (i.e. deducted) in the country’s NDC accounting, there is

value in maintaining the option to allow for transferability of carbon credits to

schemes like CORSIA. In this case, Turkey’s energy sector will remain a

beneficiary of domestic and international carbon revenues, which may

contribute positively towards the achievement of the energy capacity and

renewable energy targets.

4.3 Environmental Integrity

Fully-fledged domestic registry compatible with CORSIA and the PA

Turkey established a national registry for voluntary carbon markets in 2010,

serving to register and monitor voluntary carbon projects and record

associated transactions. Further developing the existing registry system into

a fully-fledged registry compatible with CORSIA will be essential to help

Turkey in successfully supplying credits towards the scheme as well as the

new market mechanisms that are to be operationalised under the PA.

Under the PA, NDCs are self-determined and therefore there will be no

trade in ‘allowances’ that will need to be transferred between registries post-

2021. The registry should therefore be tailored to a baseline-and-credit

system, with emissions reduction units being generated against a defined

baseline. This is comparable to carbon market activities where emission

reductions are calculated against a baseline scenario, in contrast to a

system based on ‘allowances’ whereby emission caps are allocated on the

national level (as was the case under the Kyoto Protocol). This implies that

Considerations

42

the registry will need to have the capacity to both issue and transfer units,

similar to the Markit Environmental Registry used by the Gold Standard.

The registry should also be linked to the national accounting system to

monitor and report on its emissions and removals. When such linkage is

established, any transfers of emission reductions post-2021 will need to be

adjusted to avoid double counting. This should cover both project-level

activities that transition from the current carbon market and new projects

developed under Article 6.4 of the PA, or emission reductions generated

under cooperative approaches as defined by Article 6.2. Given the

expanded scope and the enhanced volumes traded through such registry,

an electronic registry system with sufficient safeguards to prevent hacking

can be considered minimum requirements. On the regulatory side,

decisions will also need to be made concerning the legal nature of hosted

emission reduction units and the tax implications of domestic and

international transfers, amongst others. This is also crucial in relation to the

role that Turkish financial institutions could play in trading carbon credits.

Classification would determine how these financial institutions are

regulated.

The extent of effort that is to be dedicated to the establishment of a registry

will depend on whether Turkey decides to implement its own IT

infrastructure, or whether it will opt to join other jurisdictions and adopt

already existing registry processes. In either case, the operationalisation of

a robust registry system will boost the position of Turkey as a seller of

emission reduction units internationally, and should be considered a priority

issue.

An immediate consideration for Turkey could be to start with updating the

existing registry by coordinating linkages with the existing GS and VCS

registries.

Transparent system for corresponding adjustments

Aircraft operators covered under CORSIA will consider certainty of timing

and delivery and purchase cost when devising their offset purchase

strategies. Countries that can timely establish a transparent system for

corresponding adjustments will be considered as attractive sources of

supply of offsets.

For participation in an international transaction under CORSIA it is

instrumental to establish a transparent, publicly available and timely

procedure of applying an accounting adjustment at the moment of the

transfer of a unit. Turkey’s accounting adjustment is as such made

irrespective of how the unit is used by the acquiring party at a later stage.

Often, compliance buyers will prefer engaging with systems that offer clear

and predictable rules to dealing with uncertain regulations, largely informal

procedures, and the risk of constant changes to the rules. Buyers under

CORSIA would be a case point, where aviation companies would likely be

more attracted to offset suppliers that can clearly and timely secure

corresponding adjustment upon transfer of the emission reductions.

Moreover, a corresponding adjustment at the moment of transfer ensures

clarity and predictability to the international community scrutinising CORSIA.

This consideration should be taken into account when designing the registry

infrastructure discussed in the previous point.

Considerations

43

Article 6 pilot in the energy sector

Countries have agreed on the majority of the Paris Rulebook during the 24th

session of the Conference of the Parties (COP 24) in Katowice, Poland.

However, agreement on the final text concerning Article 6 of the PA and the

role of market mechanisms has been postponed to the next COP session,

which will be held in Chile in December 2019. Once there is further clarity

on Article 6 implementation modalities, the government of Turkey could

consider piloting a possible Article 6 transaction in the renewable energy

sector in Turkey to test the grounds for post-2021 emission reduction

strategies.

Given the significant emission reduction potential of the existing carbon

project pipeline, the possibility of a carbon portfolio transition into the PA

provides an opportunity for Turkey to use existing activities and capacities

to generate – and receive finance for – emission reductions in the energy

sector. This is also in line with Turkey’s NDC, which aims to use carbon

credits from international market mechanisms to achieve its 2030 mitigation

target in a cost effective manner.

A pilot Article 6 initiative targeting the renewable energy sector could

generate emission reduction units that could attract different buyers. For

instance, emissions reductions generated by the existing carbon projects

finding their way to CORSIA. In turn, units generated by new investments

could be transacted bilaterally between countries in the form of

Internationally Transferred Mitigation Outcomes. Such pilot would also be

instrumental in establishing and testing a national registry and related

institutional processes. Once tested, the registry could then be expanded to

include activities in other sectors covered by the NDC.

Appendix

44

5. Appendix

Appendix A: Methodology used to determine the potential supply of

carbon offsets from Turkish carbon projects

The supply scenarios presented in Chapter 3 have been calculated using all

Turkish renewable energy and energy efficiency projects registered under

two voluntary carbon standards, Gold Standard and the VCS. Both carbon

standards make use of Markit and in the case of the VCS also APX for their

registry services. The information used has been obtained from Markit’s

online project database76, the VCS online database77 and through direct

communication channels with both standards for completion of any data

gaps.

The total number of projects registered under the two carbon standards is

244. The Project Design Document of these projects was used as the

primary source of information. The following data was extracted from each

project:

(i) Applied carbon standard: distinguishing between the Gold

Standard or the VCS; (ii) Project type: distinguishing between Renewable Energy (e.g.

hydropower, wind power, geothermal power, solar PV) and Energy Efficiency (e.g. waste heat recovery);

(iii) Installed capacity in MW: for renewable energy projects only; (iv) Project status: two main categories of projects have been

included in this assessment. These include projects that have

reached registration and activities that have successfully issued

carbon credits;

(v) Project start date: this marks the date that the project initiates GHG mitigation activities. Due to the incompleteness of the Markit and APX project databases and lack of information on project registration dates, the project start date has been used as a proxy for the date from which carbon credits can be issued;

(vi) Duration of the crediting period: carbon projects typically apply a single 10 year crediting period or a 7 year crediting period that can be renewed twice (e.g. 21 years in total). Upon renewal of the crediting period, a project’s baseline scenario has to be updated to reflect the passage of time. The most relevant update applicable to the projects assessed in this report is the change in the national grid emission factor, which can drop over time as more renewable energy generation capacity is added. In the Turkish project pipeline, most registered apply a 7 year crediting period and therefore renewals are applicable and will impact the emission reduction potential of these projects. For the purpose of the supply scenarios, discount factors of 10 per cent have been applied upon renewal of each crediting period78;

76 https://mer.markit.com/br-reg/public/index.jsp?entity=project&nam 77 http://vcsprojectdatabase.org/#/home 78 The applicable national grid emission factor – the key determinant of the GHG mitigation potential of one MWh generated by a renewable energy project - has been reduced by 10 per cent upon each crediting period renewal. This means that in its third crediting period a typical renewable energy project will generate 80 per cent of the emission reductions forecasted in the PDD.

Appendix

45

(vii) Emission reduction potential: to establish the overall supply

potential of Turkish VERs from renewable energy and energy

efficiency projects, the annual emission reduction volumes in

tonnes of CO2 equivalent listed in the listed PDDs have been

assumed. To ensure conservativeness, an average issuance

success rate of 85 per cent has been applied in the supply

scenarios to reflect the likelihood that realised GHG emission

reductions will be lower than the ex-ante estimations presented

in the original PDDs.79

As 34 projects did not contain a Project Design Document on the registry,

secondary documents such as Gold Standard Passports or Stakeholder

Consultation Reports have been used instead to collect the above data. As

project start dates are lacking in these documents, other events have been

used as proxies to determine a plausible starting date for the projects. Most

commonly the stakeholder consultation date was used to estimate the

project start date (assumed 6 months before consultation) and the first year

of the crediting period (assumed 12 months after the consultation).

The online databases also include some information on projects that are

under validation or validated. However, as in most cases not enough

information was available and the likelihood that these projects would be

able to generate credits would be lower, these projects have been excluded

from the scenario calculations.

Appendix B: Calculating offset requirements

The following formulas defined in Paragraph 11 of Assembly Resolution

A39-3 are to be used to calculate the offset requirements for airlines

covered under CORSIA:80

a) an aircraft operator’s offset requirement = [ % Sectoral × (an aircraft

operator’s emissions covered by CORSIA in a given year × the

sector’s growth factor in the given year)] + [ % Individual × (an

aircraft operator’s emissions covered by CORSIA in a given year ×

that aircraft operator’s growth factor in the given year);

b) where the sector’s growth factor = (total emissions covered by

CORSIA in the given year – average of total emissions covered by

CORSIA between 2019 and 2020) / total emissions covered by

CORSIA in the given year;

c) where the aircraft operator’s growth factor = (the aircraft operator’s

total emissions covered by CORSIA in the given year – average of

the aircraft operator’s emissions covered by CORSIA between 2019

and 2020 ) / the aircraft operator’s total emissions covered by

CORSIA in the given year;

d) where the % Sectoral = (100% – % Individual) and;

e) where the % Sectoral and % Individual will be applied as follows:

f) from 2021 through 2023, 100% sectoral and 0% individual, though

each participating State may choose during this pilot phase whether

to apply this to:

g) an aircraft operator’s emissions covered by CORSIA in a given

year, as stated above, or an aircraft operator’s emissions covered

by CORSIA in 2020.

79 Issuance success rates are based on the historical issuance rates from the CDM. These include 84 per cent for hydropower, 85 per cent for wind power, 89 per cent for geothermal, 95 per cent for solar PV, 86 per cent for industrial energy efficiency. 80 An Airline Handbook on CORSIA (2018) Third edition. Revised, November 2018.